SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Upgrade International Corporation
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
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[LOGO]UPGRADE INTERNATIONAL CORPORATION
NOTICE OF 2001 ANNUAL MEETING
PROXY STATEMENT
---------------------------------
March 1, 2001
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Upgrade
International Corporation, (the "Company"), I cordially invite you to attend the
Company's Annual Meeting of Stockholders. The meeting will be held at 9:30 a.m.,
local time, on Tuesday, March 27, 2001 at the law offices of Ogden Murphy
Wallace P.L.L.C. located at 1601 Fifth Avenue, Suite 2100, Seattle, Washington
98101.
At the meeting, stockholders of the Company will be asked to vote upon the
election of four members nominated to the board of directors of the Company,
approval of the Company's 2000 Omnibus Stock Option Plan, as amended, and the
ratification of the appointment of Grant Thornton, L.L.P. as the Company's
independent public accountant.
I encourage you to attend the meeting in person. Whether or not you plan
to attend, however, please read the enclosed Proxy Statement and then complete,
sign and date the enclosed proxy card and return it in the accompanying
postage-paid envelope as promptly as possible. This will save the Company
additional expense in soliciting proxies and will ensure that your shares are
represented at the meeting.
Thank you for your attention to this important matter.
Very truly yours,
/s/ Daniel S. Bland
Daniel S. Bland
President and Chief Executive Officer
[LETTERHEAD OF UPGRADE INTERNATIONAL CORPORATION]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on Tuesday, March 27, 2001
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Upgrade International Corporation, (the "Company"), to be held at
9:30 a.m., local time, on Tuesday, March 27, 2001 at the law offices of Ogden
Murphy Wallace P.L.L.C. located at 1601 Fifth Avenue, Suite 2100, Seattle,
Washington 98101.
A proxy and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1.The election of the four members nominated to the Board of Directors of
the Company;
2.The approval of the Company's 2000 Omnibus Stock Option Plan, as
amended;
3.The ratification of Grant Thornton L.L.P. as the Company's independent
certified public accountants; and
4.Such other matters as may properly come before the Meeting, or any
adjournments or postponements thereof.
The Board of Directors is not aware of any other business to come before
the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned or postponed. Stockholders of record at the close of business on
February 22, 2001 are the stockholders entitled to vote at the Meeting and any
adjournments or postponements thereof.
A complete list of stockholders entitled to vote at the Meeting will be
available for examination during normal business hours by any stockholder, for
any purpose germane to the Meeting, at the main office of the Company, located
at 1411 - Fourth Avenue, Suite 629, Washington, WA 98101, during the ten days
prior to the Meeting as well as at the Meeting.
You are requested to complete, sign and date the enclosed proxy, which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed postage-paid envelope. The proxy will not be used if you attend and
vote at the Meeting in person.
By Order of the Board of Directors
/s/ Daniel S. Bland
Daniel S. Bland
President and Chief Executive Officer
Seattle, Washington
March 1, 2001
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A PRE-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
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PROXY STATEMENT
UPGRADE INTERNATIONAL CORPORATION
1411 - Fourth Avenue
Suite 629
Seattle, WA 98101
(206) 903-3116
-------------------
ANNUAL MEETING OF STOCKHOLDERS
March 27, 2001
This Proxy Statement is furnished in connection with the solicitation, on
behalf of the Board of Directors of Upgrade International Corporation (the
"Company"), of proxies to be used at the Annual Meeting of Stockholders of the
Company (the "Meeting"). The meeting will be held at 9:30 a.m., local time, on
Tuesday, March 27, 2001 at the law offices of Ogden Murphy Wallace P.L.L.C.
located at 1601 Fifth Avenue, Suite 2100, Seattle, Washington 98101.
The accompanying Notice of Annual Meeting and this Proxy Statement are
first being mailed to stockholders on or about March 1, 2001. At the Meeting,
stockholders of the Company are being asked to elect four directors of the
Company, approve the Company's 2000 Omnibus Stock Option Plan, as amended, and
ratify Grant Thornton L.L.P. as the Company's independent public accountant.
Vote Required and Proxy Information
All shares of the Company's common stock, par value $.0001 per share (the
"Common Stock"), represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. One-third of the
outstanding shares of Common Stock, present in person or represented by proxy,
shall constitute a quorum for purposes of the Meeting. Broker's non-votes are
counted for purposes of determining a quorum. Votes cast by proxy or in person
at the Annual Meeting will be tabulated by the persons appointed by the Company
to act as inspectors of election for the Annual Meeting. The inspectors of
election will also determine whether or not a quorum is present. Each
stockholder of record at the close of business on February 22, 2001 is entitled
to one vote for each share then held on each matter submitted to a vote of
stockholders. Brokers holding shares of record for their customers generally are
not entitled to vote on certain matters unless their customers give them
specific voting instructions.
The voting requirements for the proposal we will consider at the meeting
are:
Election of directors: Directors shall be elected by a plurality of the
votes present in person or represented by proxy at the Meeting and entitled to
vote on the election of directors. Votes may be cast in favor of or withheld
from each nominee; votes that are withheld will be excluded entirely from the
vote and will have no effect. Broker non-votes will have no effect on the
election of directors. If no instructions are indicated, properly executed
proxies will be voted FOR the nominees set forth herein.
Approval of 2000 Omnibus Stock Option Plan as amended: The 2000 Omnibus
Stock Option Plan as amended must be approved by the vote of the holders of a
majority of the stock present in person or represented by proxy at the Annual
Meeting and entitled to vote thereat. If the manner of voting is not specified
in an executed proxy received by the Company, the proxy holders will vote FOR
approval of the 2000 Omnibus Stock Option Plan as amended.
Ratification of Grant Thornton L.L.P. as the Company's independent
certified public accountants: The selection of Grant Thornton L.L.P. as the
Company's independent certified public accountants must be ratified by the vote
of the holders of a majority of the stock present in person or represented by
proxy at the Annual Meeting and entitled to vote thereat. If the manner of
voting is not specified in an executed proxy received by the Company, the proxy
holders will vote FOR ratification of Grant Thornton L.L.P. as the Company's
independent certified public accountants.
1
Other matters as may properly come before the Meeting - The Company does
not know of any matters, other than as described in the Notice of Annual
Meeting, that are to be presented at the Meeting. If any other matters are
properly presented at the Meeting for action, the persons named in the enclosed
proxy and acting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
A proxy given pursuant to the solicitation or otherwise may be revoked at
any time before it is voted. Proxies may be revoked by: (i) filing with the
Secretary of the Company at or before the Meeting a written notice of revocation
bearing a later date than the proxy, (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of the Company at
or before the Meeting, or (iii) attending the Meeting and voting in person
(although attendance at the Meeting will not in and of itself constitute
revocation of a proxy). Any written notice revoking a proxy should be delivered
to Howard A. Jaffe, Executive Vice President, Upgrade International Corporation,
1411 - Fourth Avenue, Suite 629, Seattle, WA 98101.
Voting Securities and Certain Holders Thereof
Stockholders of record as of the close of business on February 22, 2001
will be entitled to one vote for each share of Common Stock then held. As of
that date, the Company had 21,155,161 shares of Common Stock issued and
outstanding.
The following table sets forth, as of February 22, 2001, certain
information as to the beneficial ownership of Common Stock by: (i) those persons
or entities known by management to beneficially own more than 5% of the
Company's outstanding shares of Common Stock; (ii) the Company's Chief Executive
Officer, its Chairman of the Board and the other executive officers of the
Company (the "Named Officers"), and (iii) all directors and executive officers
of the Company as a group.
Shares Beneficially
Beneficial Owner Owned (1) Percent of Class
---------------- --------- ----------------
Daniel S. Bland (2)
Chief Executive Officer, President,
Secretary and Director ............................ 6,226,100 29.43%
Malcolm P. Burke (3)
Director .......................................... 251,333 1.19
Ronald P. Erickson (4)
Director .......................................... 391,650 1.85
Brian J. Kerr (5)
Director .......................................... 12,500 0.06
Howard A. Jaffe (6)
Executive Vice President and Chief Operating and
Financial Officer and Director .................... 228,820 1.08
Daniel Kehoe
President and CEO of Ultracard, Inc. .............. -0- -0-
John A. French
President and CEO of cQue Corporation ............. -0- -0-
David I. Zucker (7)
Director, President and of EforNet Corporation .... 175,000 .83
Directors and executive officers as a group
(8 persons) ....................................... 7,285,403 34.44%
----------
(1) Includes shares held directly, in retirement accounts, in a fiduciary
capacity or by certain affiliated entities or members of the named
individuals' families, with respect to which shares the named individuals
and group may be deemed to have sole or shared voting and/or dispositive
powers. Also includes options and warrants which are vested and
exercisable within sixty days.
2
(2) Comprised of 4,000,000 shares and 800,000 warrants (exercisable at $0.25
per share and expiring 1/20/2002) owned by the Bland Family Trust, as to
which Mr. Bland, as trustee, has sole voting and investment powers,
476,100 shares owned by International Internet Corporation, which Mr.
Bland controls, and 600,000 options (exercisable at $0.25 per share and
expiring 1/20/2004) owned directly by Mr. Bland, and 350,000 options
(exercisable at $2.75 per share and expiring 09/30/2004) owned directly by
Mr. Bland.
(3) Comprised of 7,500 shares and 150,000 options (exercisable at $0.25 per
share and expiring 1/20/2004) owned directly by Mr. Burke, and 200,000
options (exercisable at $2.50 per share and expiring 09/30/2004) owned
directly by Mr. Burke. In addition 10,500 shares owned by Primary Ventures
Corporation, a company controlled by Mr. Burke.
(4) Comprised of 550,000 options (exercisable at $0.25 per share and expiring
1/20/2001) and 100,000 options (exercisable at $2.50 per share and
expiring 09/30/2004) owned directly by Mr. Erickson.
(5) Comprised of 100,000 options to acquire shares at a price of $2.50 per
share vesting quarterly commencing December 28, 2000, owned directly by
Mr. Kerr.
(6)Comprised of 12,160 shares and 200,000 options to acquire shares at a price
of $2.50 per share fully vested, and 200,000 options to acquire shares at
a price of $2.50 vesting quarterly over a period of three years, owned
directly by Mr. Jaffe.
(7) Information to best of Company's knowledge. Comprised of 75,000 shares
owned directly by Mr. Zucker and 100,000 options, all currently
exercisable at $2.50 per share until September 30, 2004. Mr. Zucker
resigned as a member of the Board of Directors in September 2000 and as
President of EforNet in December 2000.
There are no arrangements known to the Company that may result in a change in
control of the Company.
DIRECTORS AND EXECUTIVE MANAGEMENT
The Company's Board of Directors currently consists of five members, whose
terms will expire at the Meeting. In August 2000, as part of its reincorporation
into Washington, the Company adopted new bylaws which provide for three classes
of directors with staggered terms. The nominees will become Class 2 or Class 3
directors, with terms expiring as indicated below. Mr. Kerr has indicated he
will be retiring from the Board of Directors concurrent with the Annual Meeting.
Mr. Kerr is a candidate for a Canadian provincial governmental post, and
therefore will be unable to continue as a member of the Board of Directors. The
Company intends to appoint a new qualified member to a Class 1 position on the
Board, with a term expiring in fiscal year 2002, as soon as possible.
The following table sets forth certain information, as of February 22,
2001, regarding the Company's Board of Directors, including each director's term
of office. The Board of Directors acting as the nominating committee has
recommended and approved the nominees identified in the following table. It is
intended that the proxies solicited on behalf of the Board of Directors (other
than proxies in which the vote is withheld as to one or more nominee) will be
voted at the Meeting "FOR" the election of the nominees identified below. If a
nominee is unable to serve, the shares represented by all valid proxies will be
voted for the election of such substitute nominee as the Board of Directors may
recommend. At this time, the Board of Directors knows of no reason why the
nominees may be unable to serve, if elected. There are no arrangements or
understandings between any director or nominee and any other person pursuant to
which such director or nominee was selected.
NOMINEES
Shares of
Common Stock Percent
Position(s) Held Director Term to Beneficially of
Name Age in the Company Since Expire Owned Class
---- --- -------------- ----- ------ ----- -----
Daniel S. Bland 42 Chief Executive Officer 1997 2004 6,226,100 29.43%
& President
Malcolm P. Burke 58 Director 1997 2004 251,333 1.19
Ronald P. Erickson 56 Director 1997 2003 391,650 1.85
Howard A. Jaffe 47 Executive Vice President 2000 2003 228,820 1.08
& Director
----------
Mr. Kerr, current director of the Company whose term expires with this Annual
Meeting has chosen not to serve as director of the Company after the annual
meeting and is not a nominee for reelection as director of the Company.
3
NOMINEES:
The business experience for at least the past five years of each nominee
and Director is set forth below.
Daniel S. Bland is the founder of Upgrade and has served as its President
since 1997. He also was a founder, and from 1993 to 1996 served as a director
and the chief executive officer of, Empyrean Diagnostics Ltd., a reporting
company in British Columbia under the British Columbia Securities Commission.
Malcolm P. Burke is the founder, and since 1998 has been the president and
chief executive officer, of Primary Ventures Corp., a Vancouver, British
Columbia company providing financial and strategic consulting services to
start-up companies. He also is president of Sopio Investments Ltd., a family
holding company. From 1992 to 1998 Mr. Burke was president and chief executive
officer of Interactive Entertainment Limited, an NASD Small Cap Market company.
Ronald P. Erickson has served as a director and senior executive officer
(currently chairman of the board of directors) of eCharge Corporation, a Seattle
based provider of Internet billing solutions, since October 1997. From January
1996 through August 1998, Mr. Erickson was chairman of the board of directors
and chief executive officer of GlobalTel Resources, Inc., an international
provider of telecommunications services, messaging and intranet solutions. From
September 1994 to January 1996, Mr. Erickson was managing director of
GlobalVision LLC, a consulting firm. Mr. Erickson also was a co-founder of
Egghead Software, a leading software retailer, where he was variously chairman,
vice chairman, president and chief executive officer from 1992 to 1994.
Howard A. Jaffe joined the Company in October 2000 as a consultant and in
January 2001 as the Chief Operating and Financial Officer. Mr. Jaffe is a
business and financial professional with substantial experience in mergers and
acquisitions and other capital market transactions. During the prior five years
Mr. Jaffe was the Executive Vice President and Chief Financial Officer of MB
Financial and Manufacturers Bank, a $1.4 billion financial institution.
Executive Officers
The following contains certain information regarding the executive
officers or key officers of subsidiaries who are not directors of the Company.
Daniel Kehoe has held the position of President and director of UltraCard
Inc. since 1997. From 1994 to 1997, Mr. Kehoe operated as an independent
consultant to various technology companies specializing in strategic business
development. Mr. Kehoe has a degree from Northwestern School of Law.
John A. French has been the President of cQue Corporation since 1996, a
subsidiary of Upgrade which specializes in the development and implementation of
online Web Access software products for instant data retrieval featuring the
latest products in IT technology, including the smart card. Prior to that Mr.
French worked as a business consultant with Horizon Resources/2000 specializing
in the software and smartcard development business.
Upgrade is not aware of any arrangements or understandings pursuant to
which its directors or executive officers are nominated or selected, other than
arrangements or understandings with directors or officers of Upgrade acting
solely in their capacities as such.
Meetings and Committees of the Board of Directors
The Company. The Company's Board of Directors has standing Audit and
Compensation Policy Committees.
During 2000, the Board of Directors of the Company met three times in
formal meetings and issued consents to Company action twelve times. No director
nominee or standing director of the Company attended fewer than 75% of the total
number of board and committee meetings held by the Board of Directors.
4
The entire Board of Directors acts as a nominating committee for selecting
nominees for election as directors. While the Board of Directors will consider
nominees recommended by stockholders, the Board has not actively solicited such
nominations. Pursuant to the Company's Bylaws, nominations by stockholders
generally must be delivered in writing to the Secretary of the Company at least
30 days prior to the date of the Meeting. The Board of Directors met once during
2000 in its capacity as a nominating committee.
The Audit Committee is responsible for recommending the selection of the
independent auditors of the Company and meeting with the independent auditors to
outline the scope and review the results of the annual audit. The Audit
Committee also meets with the Company's internal auditor on a periodic basis.
The Audit Committee is comprised of Directors Kerr (Chairman), Burke, and
Erickson. This committee held four meetings during 2000.
The Compensation Policy Committee is responsible for the design and
administration of the overall compensation program. In addition, the committee
reviews and approves all executive officers' compensation plans, evaluates
executive performance, grants awards under the Omnibus Stock Option Plan and
considers other related matters. The Compensation Policy Committee includes
Directors Erickson (Chairman), Burke, and Kerr. The Compensation Policy
Committee met twice during 2000.
Director Compensation
The Directors receive no cash compensation from the Company for serving as
directors. The non-employee directors have received at market stock options.
Directors are reimbursed for their out-of-pocket expenses related to their
attendance at Board or Committee meetings.
Executive Compensation
The following table sets forth information concerning the compensation of
the Named Officers for services in all capacities to the Company or its
subsidiaries for the years ended September 30, 2000, 1999 and 1998.
Summary Compensation Table
Annual Compensation Long-Term Compensation Awards
------------------- -----------------------------
Options/
Fiscal Salary Bonus Restricted Stock Warrants All Other
Name and Principal Position Year ($) ($) Award(s)($)(2) (#)(3) Compensation($)
--------------------------- ---- --- --- -------------- ------ ---------------
Daniel S. Bland 2000 $175,000 $ -- $ -- --
President and 1999 115,000 -- -- 1,750,000 --
Chief Executive Officer 1998 112,500 -- -- --
Daniel Kehoe 2000 350,000 $ -- -- -- --
President Ultracard, Inc. 1999 204,166 -- -- -- --
1998 132,199 -- $234,862 -- --
John A. French 2000 125,000 $ -- -- -- 6,600 (4)
President, 1999 108,814 -- -- -- 4,200 (4)
Cque Corporation 1998 54,000 -- -- -- --
David I. Zucker(5) 2000 149,000 $ -- -- -- 6,000 (4)
President, EforNet 1999 81,250 $ -- -- -- --
Corporation 1998 60,000 $ -- -- -- --
Howard A. Jaffe (1) 2000 $ -- $ -- -- -- --
Executive Vice President 1999 -- -- -- -- --
and Chief Operating & 1998 -- -- -- -- --
Financial Officer
----------
(1) Mr. Jaffe was hired as a consultant in October 2000 and as an executive
officer in January 2001.
(2) Represents restricted stock issued.
5
(3) Represents warrants, or incentive and non-qualified stock options granted
pursuant to the Company's Stock Option Plans. All options were granted at
or above the market price of the stock on the date of the grant and vest
up to three years.
(4) Represents automobile allowance.
(5) Mr. Zucker resigned as President of EforNet in December 2000.
Stock Option Grants in Fiscal Year 2000
The following table sets forth certain information with respect to stock
options granted to the Named Officers during the fiscal year ended September 30,
2000.
In addition to providing the number of options granted in the Summary
Compensation Table, the following table discloses the range of potential
realizable values at various assumed appreciation rates. The table discloses for
the Chief Executive Officer and other Named Officers the gain or "spread" that
would be realized at the end of the option term for the options granted during
2000, if the price of the Common Stock appreciates annually by the percentage
levels indicated from the market price on the date of grant.
Stock Options Granted in Fiscal 2000
Potential Realizable
Value at Assumed
Annual Rates
% of Total of Stock Price
Options Appreciation for
Granted to Exercise Option Term
Options Employees in Price Per Expiration ---------------------------
Name Granted Fiscal 2000(1) Share Date 5.00% 10.00%
---- ------- -------------- ----- ---- ----- ------
Daniel S. Bland -0- -0- -0- -0- -0- -0-
Daniel Kehoe -0- -0- -0- -0- -0- -0-
John A. French -0- -0- -0- -0- -0- -0-
David Zucker -0- -0- -0- -0- -0- -0-
Howard A. Jaffe -0- -0- -0- -0- -0- -0-
Option Exercises, Holdings and Values Table
The following table sets forth information with respect to shares of the
Common Stock acquired in 2000 through the exercise of stock options, including
the value realized upon the exercise, and the value of all stock options held at
September 30, 2000.
Number of Value of Unexercised
Unexercised Options "In-the-money" Options
Shares at September 30, 2000 at September 30, 2000 (1)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Daniel S. Bland -0- -0- 950,000 -0- $8,302,000 $ -0-
Daniel Kehoe -0- -0- -0- -0- -0- -0-
David Zucker 90,000 22,500 25,000 75,000 185,250 555,750
John A. French -0- -0- -0- -0- -0- -0-
Howard A. Jaffe -0- -0- -0- -0- -0- -0-
----------
(1) Represents the difference between the closing price of the Common Stock on
September 30, 2000 ($9.91 per share) and the exercise price of the stock
options.
6
Compensation Policy Committee Report on Executive Compensation
Under rules established by the Securities and Exchange Commission ("SEC"),
the Company is required to provide certain data and information in regard to the
compensation and benefits provided to the Company's Chief Executive Officer and
other executive officers of the Company. The disclosure requirements for the
Chief Executive Officer and other executive officers include the use of tables
and a report explaining the rationale for and considerations that led to
fundamental executive compensation decisions affecting those individuals. In
fulfillment of this requirement, the Compensation Policy Committee of the Bank,
at the direction of the Board of Directors, has prepared the following report
for inclusion in this Proxy Statement.
General. The Board of Directors of the Company delegated to the
Compensation Policy Committee the responsibility and authority to oversee the
general compensation policies of the Company, to establish compensation plans
and specific compensation levels for executive officers, and to review the
recommendations of management for compensation and benefits for other officers
and employees of the Company. The Compensation Policy Committee is composed
solely of independent outside directors.
The Compensation Policy Committee has adopted an executive compensation
program designed to: (i) offer competitive compensation packages in order to
attract, motivate, retain and reward those key executive officers who are
crucial to the long-term success of the Company; (ii) establish a direct link
between executive compensation and annual and long-term performance of the
Company; and (iii) encourage decision-making that maximizes long-term
shareholder value. The Compensation Policy Committee's primary compensation
objective is to ensure that such compensation be tied to the achievement of both
short term and longer term goals and objectives established in conjunction with
the Company's planning process.
Executive Compensation Policy. The compensation package provided to the
executive officers of the Company is composed principally of base salary, an
annual incentive bonus and awards under the Company's equity based plans.
Executive officers also participate in other benefit plans available to all
eligible employees.
Base Salary. It is the policy of the Compensation Policy Committee to
annually review executive compensation packages, including base salaries paid or
proposed to be paid, with compensation packages and base salaries offered by
other technology-based companies. This information is primarily derived from
third party sources and company proxy statements that provide compensation data
and analysis from other publicly held companies. Specific factors considered
include the level of responsibility delegated to a particular officer, the
complexity of the job being evaluated, the position's impact on both short term
and long term corporate goals and objectives, the expertise and skill level of
the individual under consideration, the degree to which the officer has achieved
his management objectives for the plan year, his ability to attract highly
skilled individuals to the Company and the officer's overall performance in
managing his area of responsibility. The Compensation Policy Committee's
decisions are discretionary and no quantifiable formula or weighting of the
above mentioned factors are utilized in the decision making process.
Incentive Bonus Awards. The annual incentive bonus is designed to provide
that a substantial portion of each executive officer's total compensation
remains variable. The purpose of the incentive plan is to more closely align
executive performance to the annual and long-term financial and operating
performance of the Company and to reward officers for the achievement of certain
specified goals and objectives.
Benefit Plans. The Compensation Policy Committee's policy with respect to
employee benefit plans is to provide competitive benefits to employees of the
Company, including its executive officers. Additionally, the Omnibus Incentive
Plan will provide employees, including executive officers, with an additional
equity-based incentive to maximize long-term shareholder value. The Compensation
Policy Committee believes that a competitive employee benefit package is
essential to achieving the goals of attracting and retaining highly qualified
employees.
Chief Executive Officer. The base salary paid to the Daniel S. Bland,
Chief Executive Officer of the Company for 2000 was $175,000. In examining the
base compensation of other executives among peer institutions, the Compensation
Policy Committee felt the compensation level was proper and consistent with
other peer institutions.
7
The majority of Mr. Bland's compensation was tied to options issued upon
the Company's Omnibus Stock Option Plan and warrants to purchase shares of
stock. In this position where a key component of Mr. Bland's wealth and
compensation is directly tied to the performance of the Company's stock, his
interests are closely aligned with that of the stockholders.
Ronald P. Erickson
Chairman of the Compensation Policy Committee
Malcolm P. Burke
Brian J. Kerr
Audit Committee Report
Under guidelines established by the Securities and Exchange Commission
("SEC"), the Company has expanded the responsibilities for its Audit Committee.
Included in the guideline is the establishment of a charter which details the
responsibilities for the Audit Committee. The Company's Audit Committee Charter
was adopted by the Board of Directors during 2000 and was disseminated to
shareholders previously.
The Audit Committee reviewed and discussed with Grant Thornton L.L.P., the
Company's independent auditors, who are responsible for expressing an opinion on
the conformity of those audited financial statements with generally accepted
accounting principles, the matters required to be discussed with the Audit
Committee under generally accepted auditing standards (including Statement on
Auditing Standards No. 61). In addition, the Audit Committee has discussed with
the independent auditors the auditors' independence from management and the
Company, including the matters in the written disclosures required by the
Independence Standards Board Standard No. 1.
The Audit Committee has also considered whether the provision of non-audit
services by Grant Thornton L.L.P. is compatible with their independence. The
Audit Committee discussed with the Company's independent auditors the overall
scope and plans for their audit. The Audit Committee met with the independent
auditors, with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K for the year ended
September 30, 2000 for filing with the Securities and Exchange Commission. The
Committee also recommended the reappointment, subject to shareholder approval,
of the independent auditors and the Board concurred in such recommendation.
The Audit Committee of
the Board of Directors
Brian J. Kerr,
Chairman of the Audit Committee
Ronald P. Erickson
Malcolm P. Burke
Changes in Accountant
As a result of the Company's merger with Second CMA, Inc. on April 6,
2000, whereby the Company succeeded to Second CMA as a registrant under the
Securities Exchange Act of 1934, the Company terminated the services of Comiskey
& Company which had served as auditor to Second CMA. Grant Thornton L.L.P.,
which had served as Upgrade's auditor prior to the merger, continued to serve as
the independent auditor for the Company.
8
The audit reports of Comiskey & Company on the financial statements of
Second CMA, Inc. as of and for the year ended December 31, 1999 did not contain
any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles. During Second
CMA's two most recent fiscal years and any subsequent interim period preceding
the change, there were no disagreements with the former accountant on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the former accountant, would have caused it to make reference to
the subject matter of the disagreements in connection with its report. The
Company has provided a copy of this disclosure to Grant Thornton and an
opportunity to furnish the Company with a letter addressed to the Securities and
Exchange Commission containing any new information, clarification of the
Company's expression of its views, or the respects in which it does not agree
with the statements made by the Company.
Certain Transactions
On October 10, 1997, UltraCard licensed the rights to two technology
patents from CardTech, Inc. (CardTech). UltraCard's President Daniel Kehoe is
also the controlling stockholder of CardTech. The license agreement terminates
upon the expiration of the last licensed patent. Because the agreement covers
any new patent applications filed in conjunction with the original technology
patents, the agreement does not have a definite expiration date.
Through September 30, 1999, UltraCard had paid $30,000 for an initial
licensing fee, $950,000 in minimum royalty fees and $1,009,813 in capital fees
under the license agreement. Capital fees were paid as part of the agreement
requiring UltraCard to remit to the CardTech 12.5% of every dollar received from
equity financing. In October 1997, as required by the license agreement,
UltraCard issued 2,500,000 shares of its common stock, valued at the time of the
issuance at $250,000. Related to the shares issued, UltraCard capitalized as
license cost the amount of $250,000.
For the years ended September 30, 2000 and 1999, UltraCard has recorded
$650,000 and $1,484,636, respectively, in expenses related to this agreement.
Expenses for the year ended September 30, 1999, included $919,375 in capital
fees. Royalty fees are due on January 1 of each calendar year. As of September
30, 2000, $650,000 in calendar year 2000 royalty fees remained unpaid, causing
UltraCard to be past due on the agreement. CardTech has deferred the required
2000 and 2001 payment to March 30, 2001.
As of September 30, 2000, UltraCard's remaining commitments under the
license agreement are summarized as follows:
o An earned royalty fee of 5% of the gross proceeds generated from
sales, leases or other distributions of products incorporating the
CardTech technology. The minimum annual royalty fee is payable at
$650,000 per calendar year through 2009.
o A capital fee equal to 12.5% of all equity capital invested in the
UltraCard until such time that CardTech has received a total of
$3,000,000 in such fees. The maximum remaining amount of the
commitment is $1,990,187.
Amendments to the 2000 Omnibus Stock Option Plan of
Upgrade International Corporation
General. In 1999 and 2000, the Board of Directors of Upgrade adopted the
1999 and 2000 Omnibus Stock Option Plans, respectively (collectively the
"Plan"). The Plan provides for the grant of nonqualified stock options,
incentive stock options, restricted stock, stock appreciation rights or any
combination thereof within the limitations set forth in the Plan. In addition,
the Plan gives Upgrade the flexibility to award stock options in connection with
the acquisition of other companies to the key executives of such companies to
more closely align their interests with the stockholders of Upgrade.
The Upgrade Board of Directors believes that the performance and growth of
Upgrade is dependent upon ensuring the best possible management. The Board
further believes that the Plan will encourage equity ownership in Upgrade by key
employees and in turn provide such individuals with further incentive and
motivation to
9
perform in the best interests of Upgrade, its customers, and its stockholders
and will aid in attracting and retaining high quality employees. As of February
22, 2001, 1,500,000 shares of Upgrade Common Stock had been reserved for
issuance under the 1999 Plan and 800,000 shares of Upgrade Common Stock reserved
under 2000 Plan. Under the planned amendment, the two plans will be consolidated
and 2,500,000 additional shares of Common Stock will be reserved. Without
approval of the proposed amendment to reserve additional shares for issuance,
Upgrade will soon be unable to make awards under the Plan. The Board of
Directors of Upgrade therefore recommends that the stockholders approve an
amendment to consolidate the 1999 and 2000 Stock Option Plans and to increase
the number of shares available for issuance under the Plan, to 4,800,000 shares
of Common Stock.
The principal features of the Plan are summarized below. The Plan provides
that awards may be made for 10 years from January 20, 1999, and the Plan will
remain in effect thereafter until all matters relating to the payment of awards
and administration of the Plan have been settled.
Administration. The Plan is administered by a Stock Award Committee of the
Board of Directors. The Committee consists of not less than two non-employee,
disinterested directors. The members of the Committee will include the members
of the Compensation Policy Committee, who presently are Mr. Ronald Erickson,
Chairman, Mr. Malcolm Burke and Mr. Brian Kerr.
The Committee has sole authority to administer and interpret the Plan
including the size and type of awards and the terms and conditions of such
awards.
Shares Available. The Plan provides that the aggregate number of shares of
Upgrade Common Stock which may be subject to award may not exceed 4,800,000, as
proposed, subject to adjustment in certain circumstances to prevent dilution. At
the discretion of the Committee, Upgrade Common Stock delivered under the Plan
may be either authorized but unissued shares, or shares that have been
reacquired by Upgrade. Shares underlying awards that are canceled, expired,
forfeited, or terminated shall, in most circumstances, again be available for
the grant of additional awards within the limits provided by the Plan.
Eligibility. The Plan provides for awards to directors and employees of
Upgrade and Upgrade's subsidiaries.
Stock Options. Subject to the terms and provisions of the Plan, options
may be granted to directors or employees at any time and from time to time as
shall be determined by the Committee. The Committee shall have discretion in
determining the number of shares subject to options granted to each recipient.
Each option grant shall be evidenced by an option agreement that shall specify
the option price, the duration of the option, the number of shares to which the
option pertains, the percentage of the option that becomes exercisable on
specified dates in the future, and such other provisions as the Committee shall
determine. In addition, the option agreement shall specify whether the option
was intended to be an incentive stock option or a nonqualified stock option.
The option price for each grant of an option shall be determined by the
Committee, provided that the option price shall not be less than the market
value of a share of Upgrade Common Stock on the date of the grant.
All options granted under the Plan shall expire no later than 10 years
from date of grant. Subject to the limitations set forth in the Plan, any option
may be exercised by payment to Upgrade of cash or by surrender of previously
acquired shares having an aggregate market value at the time of exercise equal
to the aggregate option price or a combination of both. Options granted shall be
subject to an agreement in a form approved by the Committee, which may contain
additional limitations, terms and conditions, in addition to the restrictions
set forth in the Plan, which the Committee otherwise deems desirable.
The Plan places limitations on the exercise of options under certain
circumstances upon or after termination of employment or in the event of the
death, disability or retirement or termination associated with a change in
control of Upgrade (as defined in the Plan). In the event that a participant
ceases to maintain continuous service with Upgrade, or its subsidiaries, for any
reason other than death, disability, retirement or termination for cause, an
exercisable stock option will be forfeited to Upgrade unless the Committee, in
its sole discretion, waives such termination, in which case all such exercisable
options will remain exercisable until their respective expiration dates, or for
one year after the date of termination, whichever period is shorter. In the
event of the death, disability or retirement of a participant after the age of
65, an exercisable option will continue to be exercisable until their respective
expiration dates, or for one year following the death of the participant,
whichever period is shorter. At
10
the discretion of the Committee the agreement evidencing the award of stock
options may provide certain limited rights to exercise certain options under
certain circumstances. Stock options are nontransferable except by will or in
accordance with the applicable laws of descent and distribution. The granting of
an option does not accord the recipient the rights of a stockholder and such
rights accrue only after the exercise of an option and the registration of
shares of Upgrade Common Stock in the recipient's name.
Restricted Stock. The Plan provides for the award of shares of Upgrade
Common Stock which are subject to certain restrictions provided in the Plan or
otherwise determined by the Committee. Restricted stock awarded pursuant to the
Plan will be represented by a stock certificate registered in the name of the
recipient to whom the award is made. Upon the grant of restricted stock, such
recipient is entitled to vote the restricted stock and to exercise other rights
as a stockholder of Upgrade, including the right to receive all dividends and
other distributions paid or made with respect to the restricted stock. However,
the recipient may not sell, transfer, pledge, exchange, hypothecate or otherwise
dispose of the restricted stock during the restriction period designated by the
Committee except by will or as may be determined by the Committee.
Non-compliance with any of the restrictions will result in a forfeiture of the
restricted stock. When the conditions of the restricted stock award established
by the Committee are satisfied, Upgrade will deliver at the end of the
restriction period stock certificates representing the shares of Upgrade Common
Stock which are no longer subject to any restrictions, except those restrictions
required by applicable securities laws.
The Committee may, in its discretion, accelerate the time at which any or
all restrictions will lapse, or may remove any or all of the restrictions. In
the event a participant ceases to be employed by reason of death, disability or
retirement, restricted stock still subject to restrictions will be free of these
restrictions unless otherwise provided by the Committee. In the event of
termination for any other reason, all shares will be forfeited and returned to
Upgrade, unless the Committee provides otherwise. There have been no shares
granted or issued under the Plan as restricted shares.
Stock Appreciation Rights. The Committee in its discretion may grant Stock
Appreciation Rights (SARs) under the Omnibus Plan. An SAR entitles the holder to
receive from Upgrade an amount equal to the excess, if any, of the aggregate
market value of Upgrade Common Stock which is the subject of such option over
the option price therefore.
Upgrade may make payment of the amount to which the participant exercising
SARs is entitled by delivering shares of Upgrade Common Stock or cash or a
combination of stock and cash, as the Committee in its sole discretion may
determine. SARs are not transferable except by will or the laws of descent and
distribution and are transferable only in conjunction with a permitted transfer
of the option to which the SAR relates and then and only then to the transferee
of such option. Each SAR shall be evidenced by an award agreement in form
approved by the Committee, which may contain additional limitations, terms and
conditions, in addition to the restrictions set forth in the Plan, which the
committee otherwise deems desirable.
In the event of a change in control of Upgrade (as defined in the Plan),
all awards granted pursuant to the Plan that are still outstanding and not yet
exercisable or vested will become immediately exercisable or vested as of the
date of the change in control and will remain exercisable and vested for their
term.
In the event the employment or service of a participant is terminated by
reason of death, disability or retirement, any outstanding SARs granted to the
participant that are not exercisable shall become immediately exercisable. All
SARs granted to such participant shall remain exercisable until their respective
expiration dates, or for one year after the date the participant ceases to be
employed, whichever period is shorter. In the event of termination for any other
reason, all shares will be forfeited and returned Upgrade, unless the Committee
provides otherwise.
Federal Income Tax Treatment. Under present federal income tax laws,
awards under the Plan will have the following consequences:
1. The grant of an award will neither, by itself, result in the
recognition of taxable income to the participant nor entitle Upgrade
to a deduction at the time of such grant.
11
2. The exercise of a stock option which is an incentive stock option
(ISO) within the meaning of Section 422 of the Code will generally
not, by itself, result in the recognition of taxable income to the
participant nor entitle Upgrade to a deduction at the time of such
exercise. However, the difference between the exercise price and the
fair market value of the shares acquired on the date of exercise is
an item of tax preference which may, in certain situations, trigger
the alternative minimum tax. The alternative minimum tax is incurred
only when it exceeds the regular income tax. The alternative minimum
tax will be payable at the rate of 26% of the first $175,000 of
"minimum taxable income" in excess of $33,750 (single person) or
$45,000 (married person filing jointly). This tax applies at a flat
rate of 28% of so much of the taxable excess as exceeds $175,000. If
a taxpayer has alternative minimum taxable income in excess of
$150,000 (married person filing jointly) or $112,500 (single
person), the $45,000 or $33,750 exemptions are reduced by an amount
equal to 25% of the amount by which the alternative minimum taxable
income of the taxpayer exceeds $150,000 or $112,500, respectively.
Provided the applicable holding periods described below are
satisfied, the participant will recognize long-term capital gain or
loss upon resale of the shares received upon such exercise, will
generally not be entitled to a tax deduction with respect to the
granting or exercise of such a stock option or the subsequent sale
of the shares. If the shares are not held for at least one year
after transfer of the shares to the optionee or two years after the
grant of the ISO, whichever is later, the participant will also
recognize ordinary income or loss upon disposition in an amount
equal to the difference between the exercise price and the fair
market value on the date of exercise of the shares acquired pursuant
to the ISO. In such an event, Upgrade will generally be entitled to
a corresponding deduction, provided Upgrade meets its federal
withholding tax obligations.
3. The exercise of a stock option which is not an ISO will result in
the recognition of ordinary income by the participant on the date of
exercise in an amount equal to the difference between the exercise
price and the fair market value on the date of exercise of the
shares acquired pursuant to the stock options.
4. The exercise of an SAR will result in the recognition of ordinary
income by the participant on the date of exercise in an amount of
cash, and/or the fair market value on that date of the shares,
acquired pursuant to the exercise.
5. Holders of restricted stock will recognize ordinary income on the
date that the shares of restricted stock are no longer subject to a
substantial risk of forfeiture, in an amount equal to the fair
market value of the shares on that date. In certain circumstances, a
holder may elect to recognize ordinary income and determine such
fair market value on the date of the grant of the restricted stock.
Holders of restricted stock will also recognize ordinary income
equal to their dividend or dividend equivalent payments when such
payments are received.
6. Upgrade will be allowed a deduction at the time and in the amount of
any ordinary income, excluding dividends, recognized by the
participant under the various circumstances described above,
provided that Upgrade meets its federal withholding tax obligations.
Amendment, Modification and Termination. The Upgrade Board may, at any
time and from time to time, terminate, amend, or modify the Plan. However, such
action will be subject to stockholder approval when such approval is required
for purposes of any federal or state law or regulation or the rules of any
applicable federal or state law or regulation or the rules of any stock exchange
or automated quotation system on which the shares may then be listed or quoted.
The Committee may waive any conditions of or rights of Plan or modify or amend
the terms of any outstanding award. The Committee may not, however, amend,
alter, suspend, discontinue or terminate any outstanding award without the
consent of the participant or holder thereof.
No termination, amendment, or modification of the Plan shall in any manner
adversely affect any award previously granted under the Plan, without the
written consent of the recipient.
Additional awards under the Plan may be granted to eligible participants
in the future at the discretion of the Stock Award Committee.
Interests of Certain Persons. The Company's executive officers and
directors are eligible to participate in the Plan and receive benefits
thereunder, and therefore have an interest in the adoption of the Plan by the
shareholders.
12
New Plan Benefits. Generally, future awards under the Plan are
discretionary so that it is impossible to determine who will receive awards and
in what amounts in the event the Plan is approved. No stock options have been
granted and no shares have been issued under the Plan on the basis of the share
increase that will result from the amendment to the Plan for which stockholder
approval is sought at the Annual Meeting.
A complete copy of the Plan, as amended, is attached to this Proxy
Statement as appendix "A".
The Upgrade Board recommends that Upgrade stockholders vote for approval
of the Plan Amendment.
INDEPENDENT PUBLIC ACCOUNTANTS
Grant Thornton, L.L.P. ("Grant Thornton"), independent certified public
accountants, have been selected by the Board of Directors to continue to serve
the Company in that capacity for 2001, subject to ratification by the
stockholders. Representatives of Grant Thornton are expected to be present at
the Meeting and can make a statement should they desire to do so and will be
available to respond to appropriate questions from stockholders.
Grant Thornton continues to perform audit professional services for and on
behalf of the Company. During 2000, Grant Thornton's audit services included
examination of the consolidated financial statements of the Company, examination
of the financial statements of subsidiaries and a review of certain filings with
the Securities and Exchange Commission. Grant Thornton's unqualified opinion of
the consolidated financial statements, along with the consolidated financial
statements of the Company, are enclosed in the mailing of this Proxy Statement.
The Upgrade Board recommends that Upgrade stockholders vote for approval
of the appointment of Grant Thornton L.L.P. as independent certified public
accountants of the Company.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials for
the next Annual Meeting of Stockholders, any stockholder proposal to take action
at such meeting must be received by the Company prior to November 1, 2001. Any
such proposal shall be subject to the requirements of the proxy rules adopted
under the Exchange Act.
OTHER MATTERS
The Board of Directors is not aware of any business to be properly
presented at the Meeting other than those matters described above in this Proxy
Statement. However, if any other matter should properly come before the Meeting,
it is intended that holders of the proxies will act in accordance with their
best judgment.
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitation by mail,
directors, officers and employees of the Company may solicit proxies personally
or by telegraph or telephone without additional compensation.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Upgrade files reports, proxy statements and other information with the
Commission under the Exchange Act. You may read this information at the
Commission's Public Reference Room located at 450 Fifth Street, N.W. Room 1024,
Washington, D.C. 20549. You may also obtain copies of this information by mail
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at prescribed rates. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission also maintains an Internet world
wide web site that contains reports, proxy statements and other information
about issuers, like Upgrade, who file electronically with the Commission. The
address of that site is http://www.sec.gov.
The Commission allows Upgrade to "incorporate by reference" information
into this Proxy Statement/ Prospectus. This means that Upgrade can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
considered to be a part of this Proxy Statement/Prospectus, except for any
information that other information included directly in this document
supersedes.
13
You can obtain any of the documents incorporated by reference in this
document through Upgrade or from the Commission through the Commission's web
site at the address described above. Documents incorporated by reference are
available from Upgrade without charge, excluding any exhibits to those documents
unless the exhibit is specifically incorporated by reference as an exhibit in
this Proxy Statement/Prospectus. You can obtain documents incorporated by
reference in this Proxy Statement/Prospectus by requesting them in writing or by
telephone from Upgrade at the following address:
Upgrade International Corporation
1411 - Fourth Avenue
Suite 629
Seattle, WA 98101
(206) 903-3116
Attention: Howard A. Jaffe
If you would like to request documents, please do so by March 15, 2001 to
receive them before the Annual Meeting. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about our Company that is different from, or in addition to, that
contained in this Proxy Statement/Prospectus or in any of the materials that we
have incorporated into this document. Therefore, if anyone does give you
information of this sort, you should not rely on it. The information contained
in this document speaks only as of the date of this document unless the
information specifically indicates that another date applies.
By Order of the Board of Directors
/s/ Daniel S. Bland
Daniel S. Bland
President and Chief Executive Officer
Seattle, Washington
March 1, 2001
14
Appendix "A"
2000 OMNIBUS STOCK OPTION PLAN, as amended
Upgrade International Corporation
February, 2001
UPGRADE INTERNATIONAL CORPORATION
2000 OMNIBUS STOCK OPTION PLAN, as amended
TABLE OF CONTENTS
Article Section Page
------- ------- ----
1 ESTABLISHMENT, PURPOSE AND DURATION
1.1 Establishment of the Plan ........................... 1
1.2 Purpose of the Plan ................................. 1
1.3 Duration of the Plan ................................ 1
2 DEFINITIONS AND CONSTRUCTION
2.1 Definitions ......................................... 1
2.2 Gender and Number ................................... 4
2.3 Severability ........................................ 4
3 ADMINISTRATION
3.1 The Committee ....................................... 4
3.2 Authority of the Committee .......................... 4
3.3 Decisions Binding ................................... 5
4 SHARES SUBJECT TO THE PLAN
4.1 Number of Shares .................................... 5
4.2 Lapsed Awards ....................................... 5
4.3 Adjustments in Authorized Shares .................... 5
5 ELIGIBILITY AND PARTICIPATION
5.1 Eligibility ......................................... 5
5.2 Actual Participation ................................ 5
6 STOCK OPTIONS
6.1 Grant of Options .................................... 6
6.2 Option Agreement .................................... 6
6.3 Option Price ........................................ 6
6.4 Duration of Options ................................. 6
6.5 Exercise of Options ................................. 6
6.6 Payment ............................................. 6
6.7 Restrictions on Share Transferability ............... 7
6.8 Termination of Employment or Service Due to Death,
Disability or Retirement ........................... 7
6.9 Termination of Employment for Other Reasons ......... 8
7 STOCK APPRECIATION RIGHTS
7.1 Grant of SARs ....................................... 8
7.2 Exercise of SARs .................................... 8
7.3 SAR Agreement ....................................... 8
7.4 Term of SARs ........................................ 8
7.5 Payment of SAR Amount ............................... 9
7.6 Termination of Employment or Service Due to Death,
Disability or Retirement ............................ 9
7.7 Termination of Employment for Other Reasons ......... 9
TABLE OF CONTENTS
Article Section Page
------- ------- ----
8 RESTRICTED STOCK
8.1 Grant of Restricted Stock ........................... 10
8.2 Restricted Stock Agreement .......................... 10
8.3 Other Restrictions .................................. 10
8.4 Certificate Legend .................................. 10
8.5 Removal of Restrictions ............................. 10
8.6 Voting Rights ....................................... 11
8.7 Dividends and Other Distributions ................... 11
8.8 Termination of Employment or Service Due to Death,
Disability or Retirement ............................ 11
8.9 Termination of Employment for Other Reasons ......... 11
9 PERFORMANCE AWARDS
9.1 Grant of Performance Awards ......................... 11
9.2 Exercise of Performance Awards ...................... 11
9.3 Performance Award Agreement ......................... 12
9.4 Term of Performance Awards .......................... 12
9.5 Termination of Employment or Service ................ 12
10 TRANSFERABILITY ............................................... 12
11 BENEFICIARY DESIGNATION ....................................... 12
12 RIGHTS OF EMPLOYEES
12.1 Employment .......................................... 12
12.2 Participation ....................................... 13
13 CHANGE IN CONTROL
13.1 In General .......................................... 13
13.2 Definition .......................................... 13
14 AMENDMENT, MODIFICATION AND TERMINATION
14.1 Amendment, Modification and Termination ............. 13
14.2 Awards Previously Granted ........................... 14
15 WITHHOLDING
15.1 Tax Withholding ..................................... 14
15.2 Share Withholding ................................... 14
16 INDEMNIFICATION ............................................... 14
17 SUCCESSORS .................................................... 14
18 REQUIREMENTS OF LAW
18.1 Requirements of Law ................................. 15
18.2 Governing Law ....................................... 15
UPGRADE INTERNATIONAL CORPORATION
2000 OMNIBUS STOCK OPTION PLAN, as amended
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 Establishment of the Plan. Upgrade International Corporation, a
Washington corporation (the "Company"), hereby establishes an
incentive compensation plan to be known as the "2000 Omnibus Stock
Option Plan" (the "Plan"), as set forth in this document. The Plan
permits the granting of Nonqualified Stock Options, Incentive Stock
Options, Stock Appreciation Rights, Restricted Stock and Performance
Awards.
Upon approval by the Board of Directors of the Company, subject to
ratification by an affirmative vote of holders of a majority of Shares present
and entitled to vote at the 2001 Annual Meeting of the Company at which a quorum
is present, the Plan shall become effective as of the origination date of the
1999 Stock Option Plan approval, that being January 19, 1999, (the "Effective
Date"), and shall remain in effect as provided in Section 1.3 herein.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the
success, and enhance the value, of the Company by linking the
personal interests of Employees and Directors with those of Company
shareholders.
The Plan is further intended to provide flexibility to the Company
in its ability to motivate, attract, and retain the services of
Employees and Directors upon whose judgment, interest, and special
effort the successful conduct of its operation largely is dependent.
1.3 Duration of the Plan. Subject to approval by the Board of Directors
of the Company and ratification by the shareholders of the Company,
the Plan shall commence on the Effective Date, as described in
Section 1.1 herein, and shall remain in effect, subject to the right
of the Board of Directors to terminate the Plan at any time pursuant
to Article 14 herein. However, in no event may an Award be granted
under the Plan on or after the fifteenth anniversary of the Plan's
Effective Date.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. Whenever used in the Plan, the following terms shall
have the meanings set forth below:
(a) "Award" means, individually or collectively, a grant under
this Plan of Nonqualified Stock Options, Incentive Stock
Options, Stock Appreciation Rights, Restricted Stock or
Performance Awards.
(b) "Board" or "Board or Directors" means the Board of Directors
of the Company.
(c) "Cause" means Participant's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties
or willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final
cease-and-desist order. For purposes of this subsection, no
act, or failure to act, on Participant's part shall be
considered "willful" unless done, or omitted to be done, not
in good faith and without reasonable belief that the action or
omission was in the best interest of the Company. In
determining incompetence, the acts or omissions shall be
measured against standards generally prevailing in the
financial institutions industry. A Participant may be
terminated for Cause only upon the affirmative vote of not
less than 50% of the quorum of the Board at a meeting of the
Board called and held for that purpose, which vote shall be
recorded in the minutes of such meeting.
(d) "Change in Control" of the Company shall be defined in
accordance with Section 13.2 herein.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor code thereto, and the
rules and regulations thereunder.
A-1
(f) "Committee" means the Committee, as specified in Article 3,
appointed by the Board to administer the Plan.
(g) "Company" means Upgrade International Corporation, a
Washington corporation (including any and all Subsidiaries),
or any successor thereto as provided in Article 17 herein.
(h) "Director" means any individual who is a member of the Board
of Directors or an advisory director of the Company or
Subsidiary who is not currently an Employee of the Company or
Subsidiary.
(i) "Disability" means a permanent and total disability, within
the meaning of Code Section 22(e)(3), as determined by the
Committee in good faith, upon receipt of sufficient competent
medical advice from one or more individuals, selected by the
Committee, who are qualified to give professional medical
advice.
(j) "Employee" means a full-time, nonunion, salaried employee of
the Company, subsidiary or affiliate. Directors who are not
otherwise employed by the Company shall not be considered
Employees under this Plan.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute thereto,
and the rules and regulations thereunder.
(l) "Fair Market Value" means the closing market price per share
of one Share on the relevant date, according to a stock
quotation source selected by the Committee. If the Shares did
not trade on the relevant date, then Fair Market Value is
determined as of the most recent date for which a quoted price
is available, or as of the most recent date for which quoted
bid and asked prices are available, whichever is most recent.
Should Fair Market Value be determined at the time of the most
recent quoted bid and asked prices, Fair Market Value shall be
equal to the bid price.
(m) "Grant Price" means the stock price above which a SAR entitles
the recipient to any increase in value, as determined by the
Committee.
(n) "Incentive Stock Option" or "ISO" means an option to purchase
Shares, granted under Article 6 herein, which is designated as
an Incentive Stock Option and is intended to meet the
requirements of Section 422 of the Code.
(o) "Insider" shall mean an Employee who is, at the time an Award
is made under this Plan, an officer, Director, or holder of
more than 10% of the Shares.
(p) "Nonqualified Stock Option" or "NQSO" means an option to
purchase Shares, granted under Article 6 herein, which is not
intended to be an Incentive Stock Option.
(q) "Option" means an Incentive Stock Option or a Nonqualified
Stock Option.
(r) "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as
determined by the Committee.
(s) "Participant" means an Employee or Director of the Company who
has outstanding an Award granted under the Plan.
(t) "Period of Restriction" means the period during which the
transfer of Shares of Restricted Stock is limited in some way
(based on the passage of time, the achievement of performance
goals, or upon the occurrence of other events as determined by
the Committee, at its discretion), and the Shares are subject
to a substantial risk of forfeiture, as provided in Article 8
herein.
(u) "Performance Award" means an Award granted pursuant to Article
9 herein.
(v) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act.
(w) "Retirement" means termination of a Participant's employment
with the Company after the Participant attains age 65.
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(x) "Related" means (i) in the case of a SAR or other right, a SAR
or other right which is granted in connection with, and to the
extent exercisable, in whole or in part, in lieu of, an Option
or another right and (ii) in the case of an Option, an Option
with respect to which and to the extent a SAR or other right
is exercisable, in whole or in part, in lieu thereof.
(y) "Restricted Stock" means an Award granted pursuant to Article
8 herein.
(z) "Shares" means shares of the common stock of the Company.
(aa) "Stock Appreciation Right" or "SAR" means an Award, designated
as a SAR, granted pursuant to Article 7 herein.
(bb) "Subsidiary" means any corporation in which the Company owns
directly, or indirectly through subsidiaries, at least 50% of
the total combined voting power of all classes of stock, or
any other entity (including, but not limited to, partnerships
and joint ventures) in which the Company owns at least 50% of
the combined equity thereof.
2.2 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the
plural.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Plan, and the Plan shall
be construed and enforced as if the illegal or invalid provision had
not been included.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by a Committee,
consisting of two or more members of the Board of Directors of the
Company, each of whom (i) shall be an outside director as defined
under Section 162(m) of the Code and (ii) shall be a Non-Employee
Director as defined under Rule 16(b) of the Exchange Act. The
members of the Committee shall be appointed by the Board of
Directors.
3.2 Authority of the Committee. The Committee shall have full power
except as limited by law or by the Certificate of Incorporation or
Bylaws of the Company or by resolutions adopted by the Board of
Directors, and subject to the provisions herein, to determine the
size and types of Awards; to determine the terms and conditions of
such Awards in a manner consistent with the Plan; to construe and
interpret the Plan and any agreement or instrument entered into
under the Plan; to establish, amend, or waive rules and regulations
for the Plan's administration; and (subject to the provisions of
Article 14 herein) to amend the terms and conditions of any
outstanding Award to the extent such terms and conditions are within
the discretion of the Committee as provided in the Plan. Further,
the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As
permitted by law, the Committee may delegate its authorities as
identified hereunder.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related
orders or resolutions of the Board of Directors shall be final,
conclusive, and binding on all Persons, including the Company, its
shareholders, Employees, Participants, and their respective
successors.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3
herein, the total number of Shares available for grant under the
Plan may not exceed 4,800,000. These Shares may be either authorized
but unissued, or Shares that have been reacquired by the Company.
The grant of an Option, Stock Appreciation Right, Restricted Stock
Award or Performance Award shall reduce the Shares available for
grant under the Plan by the number of Shares subject to such Award.
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4.2 Lapsed Awards. If any Award granted under this Plan terminates,
expires, or lapses for any reason, any Shares subject to such Award
again shall be available for the grant of an Award under the Plan,
with the exception of Restricted Stock Awards upon which dividends
have been paid to the Participants.
4.3 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or other
change in the corporate structure of the Company affecting the
Shares, such adjustment shall be made in the number and class of
Shares which may be delivered under the Plan, and in the number and
class of and/or price of Shares subject to outstanding Options,
SARs, Restricted Stock and Performance Awards granted under the
Plan, as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or
enlargement of rights; and provided that the number of Shares
subject to any Award shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 Eligibility. Persons eligible to participate in this Plan include
all Employees of the Company, its subsidiaries and affiliates,
including Employees who are members of the Board, and all Directors,
including Directors of the Company's Subsidiaries.
5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees
and Directors, those to whom Awards shall be granted and shall
determine the nature and amount of each Award. No Employee or
Director shall be entitled to be granted an Award under this Plan.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees and Directors at any time and
from time to time as shall be determined by the Committee. The
Committee shall have complete discretion in determining the number
of Shares subject to Options granted to each Participant. Options
granted to Directors shall consist only of NQSOs and not ISOs.
6.2 Option Agreement. Each Option grant shall be evidenced by an Option
agreement that shall specify the Option Price, the duration of the
Option, the number of Shares to which the Option pertains, the
percentage of the Option that becomes exercisable on specified dates
in the future, and such other provisions as the Committee shall
determine. The Option agreement also shall specify whether the
Option is intended to be an ISO or a NQSO.
6.3 Option Price. The Option Price for each grant of an Option shall be
determined by the Committee, provided that, in the case of an ISO,
the Option Price shall not be less than 100% of the Fair Market
Value of such Share on the date the Option is granted, and in the
case of a NQSO, the Option Price shall not be less than 50% of the
Fair Market Value of such Share on the date the Option is granted.
In the event any holder of 10% or more of the Shares receives a
grant of ISOs, the Option Price on such grants shall be not less
than 110% of the Fair Market Value of the Shares on the date of
grant.
6.4 Duration of Options. Each Option granted shall expire at such time
as the Committee shall determine at the time of grant; provided,
however, that no Option shall be exercisable later than the tenth
anniversary date of its grant.
6.5 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which
need not be the same for each grant.
6.6 Payment. Options shall be exercised by the delivery of a written
notice of exercise to the Chief Financial Officer of the Company,
setting forth the number of Shares with respect to which the Option
is to be exercised, accompanied by payment in full of the Option
Price.
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Upon exercise of any Option, the Option Price shall be payable to
the Company in full either (a) in cash or its equivalent, or (b) by
tendering previously acquired Shares having a Fair Market Value at
the time of exercise equal to the total Option Price, or (c) by a
combination of (a) and (b). In addition, the Company may establish a
cashless exercise program in accordance with Federal Reserve Board
Regulation G.
As soon as practicable after receipt of a written notification of
exercise and payment in full of the Option Price, the Company shall
deliver to the Participant, in the Participant's name, Share
certificates in an appropriate amount based upon the number of
Shares purchased under the Option(s).
6.7 Restrictions on Share Transferability. The Committee shall impose
such restrictions on any Shares acquired pursuant to the exercise of
an Option under the Plan as it may deem advisable, including,
without limitation, restrictions under applicable Federal securities
laws, under the requirements of any stock exchange or market upon
which such Shares are then listed and/or traded, and under any blue
sky or state securities laws applicable to such Shares.
6.8 Termination of Employment or Service Due to Death, Disability or
Retirement.
(a) Termination by Death. In the event the employment or service
of a Participant is terminated by reason of death, any
outstanding Options granted to that Participant that are not
exercisable as of the date of termination shall immediately
become exercisable. Unless otherwise set forth in the Option
agreement provided for in Section 6.2 herein, all of such
Options shall remain exercisable until their respective
expiration dates, or for one year after the date of death,
whichever period is shorter, by such Person or Persons as
shall have acquired the Participant's rights under the Option
by will or by the laws of descent and distribution.
(b) Termination by Disability. In the event the employment or
service of a Participant is terminated by reason of
Disability, any outstanding Options granted to that
Participant that are not exercisable as of the date of
termination shall immediately become exercisable. Unless
otherwise set forth in the Option agreement provided for in
Section 6.2 herein, all of such Options shall remain
exercisable until their respective expiration dates, or for
one year after the date that the Participant's Disability is
determined by the Committee to be total and permanent,
whichever period is shorter. Unless otherwise set forth in the
Option agreement provided for in Section 6.2 herein, should
the Participant die during this period, exercisability of the
Participant's Options shall be permitted for a period of one
year following the date of death.
(c) Termination by Retirement. In the event the employment of an
Employee is terminated by reason of Retirement, or the service
of a Director on the Board is terminated after age 65, any
outstanding Options granted to that Employee or Director that
are not exercisable as of the date of termination shall
immediately become exercisable. Unless otherwise set forth in
the Option agreement provided for in Section 6.2 herein, all
of such Options shall remain exercisable until their
respective expiration dates, or for one year after the date of
termination, whichever period is shorter.
(d) Exercise Limitations on ISOs. In the case of ISOs, the tax
treatment prescribed under Section 422 of the Code may not be
available if the Options are not exercised within the time
periods provided by Section 422 for each of the various types
of employment termination.
6.9 Termination of Employment for Other Reasons. If the employment of an
Employee or the service of a Director shall terminate for any reason
other than the reasons set forth in Section 6.8 herein, except for
Cause, all outstanding Options that are not exercisable as of the
date of termination immediately shall be forfeited to the Company
(and shall once again become available for grant under the Plan).
However, the Committee, in its sole discretion, shall have the right
to waive such termination and to immediately make exercisable all or
any portion of such Options. Thereafter, unless otherwise set forth
in the Option agreement provided for in Section 6.2 herein, all such
exercisable Options shall remain exercisable until their respective
expiration dates, or for one year after the date of termination,
whichever period is shorter.
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If the employment of the Employee or the service of the Director
shall terminate for Cause, all outstanding Options immediately shall
be forfeited to the Company and no additional exercise period shall
be allowed, regardless of the exercisability status of the Options.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs
may be granted to Employees and Directors at any time and from time
to time as shall be determined by the Committee. A SAR may be
Related to an Option or may be granted independently of any Option
as the Committee shall from time to time in each case determine. In
the case of a Related Option, such Related Option shall cease to be
exercisable to the extent of the Shares with respect to which the
Related SAR was exercised. Upon the exercise or termination of a
Related Option, any Related SAR shall terminate to the extent of the
Shares with respect to which the Related Option was exercised or
terminated.
The Committee shall have complete discretion in determining the
number of SARs granted to each Participant (subject to Section 4.1 herein) and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs. However, the Grant Price of a SAR shall be
at least equal to 50% of the Fair Market Value of Shares on the date of grant of
the SAR.
7.2 Exercise of SARs. SARs may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes upon the
SARs.
7.3 SAR Agreement. Each SAR grant shall be evidenced by a SAR agreement
that shall specify the Grant Price, the term of the SAR, and such
other provisions as the Committee shall determine.
7.4 Term of SARs. The term of a SAR granted under the Plan shall be
determined by the Committee, in its sole discretion, however, such
term shall not exceed fifteen years.
7.5 Payment of SAR Amount. Upon exercise of a SAR, a Participant shall
be entitled to receive payment from the Company in an amount
determined by multiplying:
(a) The difference between the Fair Market Value of a Share on the
date of exercise over the Grant Price; and
(b) The number of Shares with respect to which the SAR is
exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof.
7.6 Termination of Employment or Service Due to Death, Disability or
Retirement.
(a) Termination by Death. In the event the employment or service
of a Participant is terminated by reason of death, any
outstanding SARs granted to that Participant that are not
exercisable as of the date of termination shall immediately
become exercisable. Unless otherwise set forth in the SAR
agreement provided for in Section 7.3 herein, all of such SARs
shall remain exercisable until their respective expiration
dates, or for one year after the date of death, whichever
period is shorter, by such Person or Persons as shall have
acquired the Participant's rights under the SARs by will or by
the laws of descent and distribution.
(b) Termination by Disability. In the event the employment or
service of a Participant is terminated by reason of
Disability, any outstanding SARs granted to that Participant
that are not exercisable as of the date of termination shall
immediately become exercisable. Unless otherwise set forth in
the SAR agreement provided for in Section 7.3 herein, all of
such SARs shall remain exercisable until their respective
expiration dates, or for one year after the date the
Participant's Disability is determined by the Committee to be
total and permanent, whichever period is shorter. Unless
otherwise set forth in the SAR agreement provided for in
Section 7.3 herein, in the event the Participant dies during
this period, exercisability shall be permitted for a period of
one year following the date of death.
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(c) Termination by Retirement. In the event the employment of an
Employee is terminated by reason of Retirement, or the service
of a Director on the Board is terminated after age 65, any
outstanding SARs granted to that Participant that are not
exercisable as of the date of termination shall immediately
become exercisable. Unless otherwise set forth in the SAR
agreement provided for in Section 7.3 herein, all of such SARs
shall remain exercisable until their respective expiration
dates, or for one year after the date that employment was
terminated, whichever period is shorter.
7.7 Termination of Employment for Other Reasons. If the employment of an
Employee or the service of a Director shall terminate for any reason
other than the reasons described in Section 7.6 herein, except for
Cause, all unexercised SARs held by the Participant at that time
immediately shall be forfeited to the Company (and shall once again
become available for grant under the Plan). However, the Committee,
in its sole discretion, shall have the right to waive such
termination and to make exercisable all or any portion of such SARs.
Thereafter, unless otherwise set forth in the SAR agreement provided
for in Section 7.3 herein, all such exercisable SARs shall remain
exercisable until their expiration dates, or for one year after the
date of termination, whichever period is shorter.
If the employment or service of the Participant shall terminate for
Cause, all outstanding SARs immediately shall be forfeited to the
Company and no additional exercise period shall be allowed,
regardless of the exercisability status of the SARs.
ARTICLE 8. RESTRICTED STOCK
8.1 Grant of Restricted Stock. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may
grant Shares of Restricted Stock to Employees and Directors in such
amounts as the Committee shall determine.
8.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock agreement that shall specify the
Period of Restriction, or Periods, the number of Restricted Stock
Shares granted, and such other provisions as the Committee shall
determine.
8.3 Other Restrictions. The Committee shall impose such restrictions on
any Shares of Restricted Stock granted pursuant to the Plan as it
may deem advisable including, without limitation, restrictions based
upon the achievement of specific performance goals (Company-wide,
Subsidiary, and/or individual), and/or restrictions under applicable
Federal or state securities laws; and may legend the certificate
representing Restricted Stock to give appropriate notice of such
restrictions. The Committee may also require that Participants make
cash payments at the time of grant or upon lapsing of restrictions.
Such cash payments, if imposed, will be in an amount not less than
the par value of the Shares.
8.4 Certificate Legend. In addition to any legends placed on
certificates pursuant to Section 8.3 herein, each certificate
representing Shares of Restricted Stock granted pursuant to the Plan
shall bear the following legend:
"The sale or other transfer of the Shares of stock represented
by this certificate, whether voluntary, involuntary, or by operation
of law, is subject to certain restrictions on transfer as set forth
in the Upgrade International Corporation 2000 Omnibus Stock Plan and
in a Restricted Stock agreement dated _________. A copy of the Plan
and such Restricted Stock agreement may be obtained from the Chief
Financial Officer of Upgrade International Corporation."
8.5 Removal of Restrictions. Except as otherwise provided in this
Section, Shares of Restricted Stock covered by each Restricted Stock
grant made under the Plan shall become freely transferable by the
Participant after the last day of the Period of Restriction. Once
the Shares are released from the restrictions, the Participant shall
be entitled to have the legend required by Section 8.4 herein
removed from his or her Share certificate.
8.6 Voting Rights. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise
full voting rights with respect to those Shares.
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8.7 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder
shall be entitled to receive all dividends and other distributions
paid with respect to those Shares while they are so held. If any
such dividends or distributions are paid in Shares, the Shares shall
be subject to the same restrictions on transferability and
forfeitability as the Shares of Restricted Stock with respect to
which they were paid.
8.8 Termination of Employment or Service Due to Death, Disability or
Retirement. In the event that a Participant's employment or service
with the Company is terminated by reason of death, Disability, or
Retirement, the restrictions on the Participant's Restricted Stock
shall lapse as of the date of termination (in the case of
Disability, the restrictions shall lapse on the date the
Participant's Disability is determined by the Committee to be total
and permanent).
8.9 Termination of Employment for Other Reasons. If the employment or
service of the Participant shall terminate for any reason other than
those reasons described in Section 8.8 herein, including a
termination for Cause, all nonvested Shares of Restricted Stock held
by the Participant at that time immediately shall be forfeited and
returned to the Company (and shall once again become available for
grant under the Plan, except that Shares upon which dividends have
been paid to a Participant may not become available for re-grant
under the Plan). However, with the exception of a termination of
employment for Cause, the Committee, in its sole discretion, shall
have the right to provide for lapsing of the restrictions on
Restricted Stock following termination, upon such terms and
provisions as it deems proper.
ARTICLE 9. PERFORMANCE AWARDS
9.1 Grant of Performance Awards. Subject to the terms and provisions of
the Plan, Performance Awards may be granted to Employees and
Directors at any time and from time to time as shall be determined
by the Committee. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without
limitation, Restricted Stock), other securities, other Awards or
other property and (ii) shall confer on the holder thereof the right
to receive payments, in whole or in part, upon the achievement of
such performance goals during such performance periods as the
Committee shall establish. Subject to the terms of the Plan and any
applicable Performance Award agreement, the performance goals to be
achieved during any performance period, the length of any
performance period, the amount of any Performance Award granted and
the amount of any payment or transfer to be made pursuant to any
Performance Award shall be determined by the Committee.
9.2 Exercise of Performance Awards. Performance Awards may be exercised
upon whatever terms the Committee, in its sole discretion, imposes
upon the Performance Awards.
9.3 Performance Award Agreement. Each Performance Award grant shall be
evidenced by a Performance Award agreement that shall specify the
term of the Performance Award and such other provisions as the
Committee shall determine.
9.4 Term of Performance Awards. The term of a Performance Award granted
under the Plan shall be determined by the Committee, in its sole
discretion, however, such term shall not exceed ten years.
9.5 Termination of Employment or Service. The disposition of a
Performance Award upon termination of employment or service shall be
determined by the Committee, in its sole discretion.
ARTICLE 10. TRANSFERABILITY
No Award granted under the Plan shall be transferable otherwise than
by will, the laws of descent and distribution or pursuant to a
qualified domestic relations order, except an Award may be
transferred by gift to any member of the Participant's immediate
family or to a trust for the benefit of one or more of such
immediate family members if the Committee so specifies in the Award
agreement. During the lifetime of an Award recipient, an Award shall
be exercisable only by the Award recipient unless it has been
transferred as permitted hereby, in which case it shall be
exercisable only by such transferee. For
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the purpose of this Article 10 a Participant's "immediate family"
shall mean the Participant's spouse, children and grandchildren.
ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in
case of his or her death before he or she receives any or all of
such benefit. Each such designation shall revoke all prior
designations by the same Participant, shall be in a form prescribed
by the Company, and will be effective only when filed by the
Participant in writing with the Chief Financial Officer of the
Company during the Participant's lifetime. In the absence of any
such designation, benefits remaining unpaid at the participant's
death shall be paid to the Participant's estate.
ARTICLE 12. RIGHTS OF EMPLOYEES
12.1 Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's
employment or service at any time, nor confer upon any Participant
any right to continue in the employ or service of the Company.
For purposes of the Plan, transfer of employment or service of a
Participant between the Company and any one of its Subsidiaries (or
between Subsidiaries) shall not be deemed a termination of
employment or service.
12.2 Participation. No Employee or Director shall be entitled to be
selected to receive an Award under this Plan, or, having been so
selected, to be selected to receive a future Award.
ARTICLE 13. CHANGE IN CONTROL
13.1 In General. Unless otherwise set forth in the applicable Award
agreement, in the event of a Change in Control of the Company as
defined in Section 13.2 herein, all Awards granted under this Plan
that are still outstanding and not yet exercisable or vested shall
become immediately exercisable or vested as of the date of the
Change in Control and shall remain exercisable and vested for their
term.
13.2 Definition. For purposes of the Plan, a Change in Control shall mean
(i) any third person, including a "group" as defined in Section
13(d)(3) of the Exchange Act, shall become the beneficial owner of
shares of the Company with respect to which 25% or more of the total
number of votes for the election of the Board of Directors of the
Company may be cast, (ii) as a result of, or in connection with, any
cash tender offer, merger or other business combination, sale of
assets or contested election, or combination of the foregoing, the
persons who were directors of the Company shall cease to constitute
a majority of the Board of Directors of the Company, or (iii) the
stockholders of the Company shall approve an agreement providing
either for a transaction in which the Company will cease to be an
independent publicly-owned corporation or for a sale or other
disposition of all or substantially all the assets of the Company.
The Board has final authority to determine the exact date on which a
Change in Control has been deemed to have occurred.
ARTICLE 14. AMENDMENT, MODIFICATION AND TERMINATION
14.1 Amendment, Modification and Termination. The Board may, at any time
and from time to time, terminate, amend, or modify the Plan without
the consent of shareholders or Participants, except that any such
action will be subject to the approval of the Company's shareholders
if, when and to the extent such shareholder approval is necessary or
required for purposes of any applicable federal or state law or
regulation or the rules of any stock exchange or automated quotation
system on which the Shares may then be listed or quoted, or if the
Board, in its discretion, determines to seek such shareholder
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approval. The Committee may waive any conditions of or rights of the
Company or modify or amend the terms of any outstanding Award. The
Committee may not, however, amend, alter, suspend, discontinue or
terminate any outstanding Award without the consent of the
Participant or holder thereof, except as otherwise herein provided.
14.2 Awards Previously Granted. No termination, amendment, or
modification of the Plan shall in any manner adversely affect any
Award previously granted under the Plan, without the written consent
of the Participant.
ARTICLE 15. WITHHOLDING
15.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy Federal, state, and local
taxes (including the Participant's FICA obligation) required by law
to be withheld with respect to any grant, exercise, or payment made
under or as a result of this Plan.
15.2 Share Withholding. With respect to withholding required upon the
exercise of Options, upon the lapse of restrictions on Restricted
Stock, or upon any other taxable event hereunder, Employees may
elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value, on the date the tax is
to be determined, equal to the minimum marginal tax which could be
imposed on the transaction.
ARTICLE 16. INDEMNIFICATION
Each Person who is or shall have been a member of the Committee, or
of the Board, shall be indemnified and held harmless by the Company
against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with
or resulting from any claim, action, suit, or proceeding to which he
or she may be a party or in which he or she may be involved by
reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or
her in satisfaction of any judgment in any such action, suit, or
proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the
same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such
Persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them
harmless.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan, with respect to
Awards granted hereunder, shall be binding on any successor to the
Company.
ARTICLE 18. REQUIREMENTS OF LAW
18.1 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental
agencies or national securities exchanges as may be required.
18.2 Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with
and governed by the laws of the State of Washington.
A-10
NOTE: This Proxy should be marked, dated and signed by the stockholder (s)
exactly as his or her name appears heron, and returned in the enclosed envelope.
THIS PROXY WILL BE VOTED AS DIRECTED AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY COME BEFORE THE MEETING OR ANY POSTPONEMENT(S) OR
ADJOURNMENTS(S) THEREOF WITH RESPECT TO THE APPROVAL OF THE AGREEMENT AND PLAN
OF MERGER, IF NO CONTRARY OBJECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER.
DATED: _____________________________________, 2001.
___________________________________________________
Print name(s) exactly as shown on Stock Certificate
___________________________________________________
(Signature)
___________________________________________________
(Signature)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.
Please sign exactly as your name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by the President or other authorized officer. If a
partnership, please sign in partnership name by an authorized person. THIS PROXY
WILL BE VOTED FOR THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND FOR ANY
OTHER PROPOSALS IF NO SPECIFICATION IS MADE.
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
UPGRADE INTERNATIONAL CORPORATION
SPECIAL MEETING OF STOCKHOLDERS - MARCH 27, 2001
The undersigned stockholder of UPGRADE INTERNATIONAL CORPORATION, a Washington
corporation, (the "Company") hereby acknowledges receipt of the Notice of 2001
Annual Meeting of Stockholders and Proxy Statement, and hereby appoints Daniel
Bland, or Howard Jaffe or either of them, as proxies and attorneys-in-fact with
full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the Annual Meeting of Stockholders
of the Company to be held on March 27, 2001, at adjournment(s) or
postponement(s) thereof, and to vote all shares of Stock that the undersigned
would be entitled to vote if then and there personally present, on the matter
set forth below:
Proposal No. 1 - To elect the following persons as directors of the Company:
Daniel S. Bland, Class 3 (term expiring 2004)
|_| FOR |_| WITHHOLD VOTE
Malcolm P. Burke, Class 3 (term expiring 2004)
|_| FOR |_| WITHHOLD VOTE
Ronald P. Erickson, Class 2 (term expiring 2003)
|_| FOR |_| WITHHOLD VOTE
Howard A. Jaffe, Class 2 (term expiring 2003)
|_| FOR |_| WITHHOLD VOTE
Proposal No. 2 - To approve the 2000 Omnibus Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
Proposal No. 3 - To appoint the Grant Thornton, L.L.P. as the Company's
independent auditors for the fiscal year 2001.
|_| FOR |_| AGAINST |_| ABSTAIN
Proposal No. 4 - To transact such other business as may properly come before the
meeting or any adjournment thereof.
|_| FOR |_| AGAINST |_| ABSTAIN
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE